Wednesday, March 14, 2007

Raising prices can be a good thing

Walter Williams makes the point that it's too cheap (read, too easy) for nonsmokers to impose their will on smokers, and ban smoking in any number of places.

The cost to nonsmokers to impose their will on smokers, say, in a restaurant, bar or airplane, is zero, or close to it. They just have to get the legislature to do their bidding. When the cost of something is zero, there's a tendency for people to take too much of it. You say, "Williams, in my book, there can never be too much smoke-free air!" Here's a little test. Say your car's out of gas and stuck in a blizzard. You wave me down for assistance. I say, "I'll be glad to give you a lift to safety, but I'm smoking in my car." How likely is it that you'll turn down my assistance in an effort to avoid tobacco smoke? You might be tempted to argue, "That's different." It's not different at all. The cost of a smoke-free environment is not what you're willing to pay.

Say you don't permit smoking in your house. When I visit, I offer to pay you $100 for each cigarette you permit me to smoke. Instantaneously, I've raised the cost of your maintaining a smoke-free environment. Retaining smoke-free air in your home costs the sacrifice of $100. Of course, I could offer you higher amounts, and economic theory predicts that at some price, you'll conclude your 100 percent smoke-free air isn't worth it.

And in fact, the Marriott hotel chain has banned smoking in all its hotels. If you do smoke in your room, the hotel tacks on an additional $250 charge to pay for restoring the room to its un-smoky condition.

That's 2½ cigarettes for Walter Williams.

The problem in our society is that laws have created too much smoke-free air. To a large degree, it's the fault of smokers, who haven't created a cost to smoke-free air.

You say, "What do you mean, Williams?" Here's an example: A number of years ago, a congressman (who shall remain nameless) invited me to give a lecture to some staffers. I asked him if it was OK for me to smoke during my lecture, whereupon he told me about Congress' no-smoking rule. I told him that if I weren't allowed to smoke, I wouldn't give the lecture. The congressman promised he'd tell the guard that I could smoke, and I gave the lecture. There have been other occasions where I've attached a price to smoke-free air. I fully recognize that people and organizations have their rules, but I also have mine.

My rule is by no means absolute. There are instances where I put up with zero-priced smoke-free air, and there are other instances where I don't. It all depends on the cost to me. I think other smokers ought to adopt the same agenda. Say you're asked to do some volunteer work. You might answer, "Yes, if I'm allowed to smoke." This strategy might also be a nice way to get out of doing something without saying no. Just ask whether smoking is permitted.

The bottom line – prices shape behavior.

The economic lesson to extract from all of this is that zero prices lead to sub-optimal outcomes, and it doesn't just apply to the smoking issue. How would you like zero prices at the supermarket or clothing store? If there were, what do you think you'd see on the shelves when you arrived? If you said, "Nothing, because people would take too much," go to the head of the class.

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